1 / 33

Mysteries of a Compliant Accounting System - PowerPoint PPT Presentation

  • Uploaded on

Mysteries of a Compliant Accounting System. Breakout Session # WC10-707 Melanie Burgess, CPA Sr. Consultant, Cherry, Bekaert & Holland, L.L.P. [email protected] Monday, July 19, 2010 2:00-3:15 pm . 1. Objectives. Requirement for adequate systems General data requested Preparing for audit

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Mysteries of a Compliant Accounting System' - yasuo

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Mysteries of a compliant accounting system l.jpg
Mysteries of a Compliant Accounting System

Breakout Session # WC10-707

Melanie Burgess, CPA

Sr. Consultant, Cherry, Bekaert & Holland, L.L.P.

[email protected]

Monday, July 19, 2010

2:00-3:15 pm


Objectives l.jpg

Requirement for adequate systems

General data requested

Preparing for audit

Real world stories

Proposed rule

Closing remarks

The myth l.jpg
The Myth

“Approved” Accounting Systems

The truth l.jpg
The Truth

“Adequate” Accounting Systems

Based on contract type and requirements

FAR 16.301-3 – adequate to determine costs applicable to cost reimbursement contracts (no FAR requirement for T&M or FFP contracts)

FAR 9.103 – KO must determine responsibility IAW FAR 9.104-1

May request a pre-award survey (FAR 9.106)

No longer adequate in part – either adequate or inadequate

When are audits conducted l.jpg
When are Audits Conducted?

Prior to award of cost or T&M type contract

After award of contract to verify system functioning properly

If accounting software changes

Mergers and Acquisitions

Why we should care l.jpg
Why We Should Care

Contracting Officers use audit report to help determine contractor responsibility

Negative report may result in not winning cost type or T&M work

Both Government and Prime contractors are asking contractors to certify whether or not system(s) are adequate

Accounting system defined l.jpg
Accounting System Defined





Basic requirements l.jpg
Basic Requirements

Segregation of Duties

Written policies and procedures

Method to consistently allocate costs

Identify costs by project

Software is a tool to accomplish this

Size matters l.jpg
Size Matters

Compliant system varies by company size

1 man shop requires little controls or written policies

1000 person company needs segregation of duties, employee training, written policies

Requested data l.jpg
Requested Data

Chart of Accounts

Trial Balance – in accrual; ties to all subsidiary reports

May also request G/L

Financial Statements

Project Report(s)

Organization Chart

List of government contracts

Requested data contd l.jpg
Requested Data, contd.

Policies and Procedures



Indirect Rates


Segregating costs (emphasis on unallowable)

Survey of Contractor’s Organization

Preparing for audit l.jpg
Preparing for Audit

Always be audit ready

Expected to provide info quickly (see MRD from 12/19/08)

Request audit number & name

Review audit program to understand scope

Pre-award Survey of Prospective Contractor Accounting System – Activity Code 17740

Standard Form 1408

Preparing for audit contd l.jpg
Preparing for Audit, contd

Written description of basic account structure

System used (Deltek, QuickBooks)

Identify pools and bases for indirect rates and how to identify within the chart of accounts

Define company’s allocation methods and indirect cost pools

Overview only – may only be a few pages

Preparing for audit contd15 l.jpg
Preparing for Audit, contd

Reconcile all reports and correct variances or have a thorough explanation available prior to audit

Select a variety of timesheets

self-audit that timekeeping procedure was followed and time properly recorded in accounting system

Identify contracts with special accounting/billing requirements and verify contract terms followed (75% notice)

Surprises l.jpg

Post Award Accounting System Audits

Pre-award Survey – conducted again?

But everything was fine in the last audit

Proposed change to DFARS

Potential for withholding if systems are inadequate

Post award accounting system audit l.jpg
Post Award Accounting System Audit

Scope: adequate system to segregate and bill costs IAW contract requirements

Not designed for overall accounting system review

Not testing internal controls

May be requested by Contracting Officer or follow-up to pre-award

Real world examples l.jpg
Real World Examples

Was adequate, now it’s inadequate

Special requests

Written policies


Fully utilizing accounting system

New business

Adequate to inadequate l.jpg
Adequate to Inadequate

Accounting System: Deltek FMS

Revenue > $20 million

Original pre-award audit deemed system adequate

Several years later, updating with a post award audit

System deemed inadequate

Significant issues:

Lack of billing policies and procedures

Lack of training on proper billing procedures

Billings not based on current accounting information

Not reconciling booked to billed costs

Not excluding unallowable costs (travel)

Adequate to inadequate contd l.jpg
Adequate to Inadequate, contd

Contractor Response:

Develop policies and procedures to exceed DCAA’s recommendations

Hire additional accounting staff

Develop training plan

Revise method to calculate invoices

Revise expense reimbursement policy

Hired consultant to assist with project reconciliations and P&P development

Adequate to inadequate contd21 l.jpg
Adequate to Inadequate, contd


Regular visits with DCAA to track progress

Meetings with customers to assure of contractor’s capabilities/responsibility

High cost in labor and time to correct

Follow-up audit conducted

Received notice of adequate system 1 year after initial audit began

Prime ko request l.jpg
Prime & KO Request

Accounting System: Peachtree

Revenue > $10 million

Prime contractor questioned propriety of subcontractor cost allocations

IG investigated subcontractor and found no improprieties

Subcontractor awarded large prime contract - cost reimbursable

KO read article on IG investigation and asked DCAA to perform accounting system survey

System found inadequate

Different KO received report and stated no renewal of cost contract

Prime ko request contd l.jpg
Prime & KO Request, contd

Negotiated with KO to receive FFP contract

Significant issues

Inconsistent treatment of fringe benefits as direct or indirect cost

Mistake in presentation on the ICS

Non-segregation of costs by contract type within a contract

Accounting system is capable of this

Setup corrected

Indirect costs not billed using provisional billing rates

Misunderstanding on ability to revise provisional rates

Indirect rates not adjusted to actual year end rates

Creating policy to make interim billing adjustments

Prime ko request contd24 l.jpg
Prime & KO Request, contd


Incurred cost submissions amended and accepted by DCAA

Negotiations with customers to award FFP contracts or extend current contracts

Large expense in time and money to resolve

DCAA returned to review accounting system

KO requested specific invoices be reviewed

Debate on accuracy of invoices

Adequacy of accounting system withheld pending result of billing system

Not resolved after 15 months

Policies procedures l.jpg
Policies & Procedures

Accounting System: Solomon

Pre-award survey conducted

Contractor activities were adequate

Lacked written policies & procedures – inadequate system

Contractor put everything in writing within weeks

DCAA not to return for 6 months to have sufficient data to test

Contractor lost two contracts as a result of report

Policies and procedures contd l.jpg
Policies and Procedures, contd

DCAA returned and found directly associated unallowable costs that were not segregated

Maintained system was inadequate

As of March 2010, system still inadequate (9 months after initial report)

Timekeeping l.jpg

Accounting System: Deltek Costpoint

System found inadequate for not recording time in and out

No requirement to record this information

Until contractor can overturn this decision, remains on record and can affect future awards

Accounting system features l.jpg
Accounting System Features

Accounting System: Deltek Costpoint

Significant Issues

Not segregating unallowable G&A travel

Not maintaining adequate contract briefs

Contractor Response

Hired a consultant to review segregation of unallowable travel after adjusting system

Prepared contract briefs in Word format following Schedule S

Hired a consultant to review briefs against contracts

Consultant wrote report on procedures and results

Letter provided to KO

DCAA returned and deemed system adequate (took 6-8 months)

New business l.jpg
New Business

Accounting System: QuickBooks

Pre-award survey prior to award of SBIR contract

Revenue size < $1 million

Redesigned chart of accounts prior to audit

Improved policies to be more clear on timekeeping and payroll

Improved company handbook

Developed a policy on segregating unallowable costs

Provided DCAA with organized package of info requested

Explained why some items were not applicable

Adequate system and promise that there will be a follow-up audit to ensure system working

Dfars case 2009 d038 l.jpg
DFARS Case 2009-D038

Acceptable business system rule

Mandatory - Withhold payments – up to 50%

Interim payments

Cost reimbursement

Incentive type


Labor Hour

Progress payments

Performance-based payments

No exception for commercial contracts

Dfars case 2009 d038 contd l.jpg
DFARS Case 2009-D038, contd

Systems involved



Material Management & Accounting


Earned Value Management

Property Management

Public Comments closed; committee report due July 28

Final remarks l.jpg
Final Remarks

Don’t assume system is adequate

Continuous improvement

Consider expert advice

Before audit

During audit

Upon receipt of draft report

Mock audit(s)